Retroactive Liability and Future Risk: The Optimal Regulation of Underground Storage Tanks

The optimal design of environmental liability policy focuses on two primary policy issues: the cleanup of existing sources of pollution and the definition and enforcement of policies to promote prospectively efficient environmental risk reduction. Through the analysis of a policy toward a pervasive environmental risk -- leaking underground storage tanks - we analyze the effectiveness of an existing policy governing retroactive and prospective liability issues and suggest ways in which that policy can be improved. While we find some theoretical support for the public financing of UST cleanups, we also find the current system to be flawed in its implementation. In general, the paper argues that public financing of past pollution cleanup costs can lead to greater future risk deterrence by allowing firms to more fully internalize the costs of future environmental risks. However, if it is practically or politically impossible to limit public financing to retroactive liabilities alone, the deterrent effect of such a system is vastly reduced.

Issue Date:
Publication Type:
Working or Discussion Paper
Record Identifier:
PURL Identifier:
Total Pages:
JEL Codes:
K13; Q28
Series Statement:
Discussion Paper 96-02

 Record created 2017-04-01, last modified 2018-01-22

Download fulltext

Rate this document:

Rate this document:
(Not yet reviewed)